Mar 26, 2020 - Economy

When $2.2 trillion is not enough

Illustration of question marks made of money pattern.

Illustration: Eniola Odetunde/Axios

Perhaps the most important thing about the $2.2 trillion stimulus bill the Senate passed late Wednesday night is that it is not a stimulus bill at all.

  • It is not intended to stimulate growth and spending to offset a potential downturn; it is designed to prevent mass homelessness, starvation and a wave of business closures not seen since the height of the Great Depression.

Why it matters: The bill's price tag is around 10% of U.S. GDP, and Congress is already bickering internally — as well as with various lobbyists and policy advocates — about whether it goes far enough in a plethora of directions.

Even if the bill passes, the story won't be over:

  • We are likely to be in this same situation again, economists say — and soon.
  • Another stimulus bill will likely be necessary to get the economy running after the COVID-19 outbreak has been contained.
  • More immediately, it's possible that a second massive spending bill will be needed just to stop further bleeding.

What it means: "This should not be thought of as a stimulus bill — this should be thought of as social insurance in a disaster state of the world for the most hard hit," Jonathan Parker, professor of finance at MIT, told Axios during a virtual briefing with reporters Wednesday.

  • "The idea is to freeze time for a month or six weeks and let people emerge with not a huge amount of debt — not starving, not being evicted."
  • This would ideally produce "a V-shaped recovery where people find themselves roughly where they were when we went in."

State of play: The bill includes unprecedented direct payments to individuals: Up to $1,200 a person and $500 per child, even for those who have no income, plus extended and upgraded unemployment insurance, even for gig workers.

  • But social service and human rights advocates say the one-time payment is too small and excludes too many.

The legislation includes $150 billion for state and local governments, which run the bulk of the nation’s overburdened public health services.

  • But as Axios Cities editor Kim Hart points out that's the minimum requested by the National Governors Association with “maximum flexibility,” and $100 billion short of a request from the U.S. Conference of Mayors.

It includes $350 billion for small businesses and $500 billion for large companies in loans, loan guarantees and other investments.

  • But Moody's, the ratings agency, warns that outright debt defaults and liquidations are still likely for many businesses, especially smaller firms and those with speculative grade credit ratings.

"Most companies can cope with a 15- to-30 day lockdown, but a few additional weeks would likely exhaust available resources for a significant number," Moody's said in a report released late Wednesday. "This crisis is beyond what they could have reasonably prepared for."

What's next: This morning the Department of Labor is expected to announce that as many as 3.4 million people filed for unemployment insurance last week.

  • Not only would that be the highest level in history, it would be nearly five times the highest level of claims seen during the Great Recession.
  • And this is likely just the first data point in a string of previously unfathomable reports on the U.S. economy to come.

The bottom line: The policy response is important to prevent a worst-case scenario, but everything hinges on containing the COVID-19 outbreak.

  • As former Fed chair Ben Bernanke warned in a CNBC interview: “Nothing is going to work, the Fed is not going help, fiscal policy is not going to help, if we don’t get the public health right — if we don’t solve the problem of the virus."
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